Two Investment Guarantees that Investors Can Take to The Bank

One word was forbidden in the financial industry. Even though I am now an investor coach, I am still acutely aware of the consequences, implications and impact this word has on my conversations, blogs articles, webinars, seminars, and articles. But times have changed and I am ready to add this word back to my vocabulary. What is it? Guarantee.

This word is prohibited in the financial industry. To understand why, and how I am cautious about using it, let’s first examine the definition. Guarantee; A formal assurance or promise that certain conditions will be met in relation to a product, transaction, or service.

Some interpret this word as legally binding because it ‘provides a formal promise that certain terms shall be fulfilled’. This idea of legally binding is a huge concern for the financial services industry as it gives investors legal recourse, which is exactly what they don’t want. Investors should never hear the word “guaranteed” in conversation.

This word is used for a different purpose. It is my responsibility as an educator to set the right expectations for anyone learning to invest independently based on my guidance. I know that future market direction, returns on investments, and the winners and losers of stocks, mutual funds, and/or fund managers cannot be predicted with 100% certainty.

The following are the reasons I think it’s high time to reintroduce the word “guarantee” into my vocabulary:

Dodd-Frank Financial Reform Act will affect the financial services industry.

Our national debt will rise to $25 Trillion annually by 2020 due to the annual deficits.

Based on the above pending regulations, and the projected national debt, I am confident in the following two investment guarantee:

To cover the additional expenses incurred in the financial services industry and financial firms by the Dodd-Frank Act, investment fees will rise. These expenses will be passed on to investors as higher and more expensive investment fees at all levels.

To reduce our annual deficits and pay down our national debt, taxes will rise to increase. These tax increases could be personal income, business, capital gain, estate, 401k withdrawals, and others.

What does this guarantee mean for investors?

Investors will see a lower return percentage due to investment fees. Investors pay an average of 2.5% to 4.0% annually in fees. This is a sad fact because most investors don’t know about it. These fees are taken directly from the investor’s earned returns and reported on an investor statement. These fees will rise to between 3.5% and 5.0% under the new regulations. For a better understanding of these fees, think about the following: Fees will be confiscated up to $500 per annum for $10,000 of investment, regardless of whether the investments are profitable or not. For a $100,000 investment these fees can be confiscated up to $5,000 per annum. If you have $1,000,000 saved, the fees could amount to $ 50,000 per annum! Multiplying these annual costs over 10, 20, or 30 years, and adding the loss of compounding over those years, it is easy to see why investors lose approximately 70% of their lifetime wealth potential to investment fees…70%

Tax increases can be very painful because they also confiscate money from workers, employers, consumers and investors. An advisor can help investors invest in short-term speculative strategies. These capital gains are subject to higher taxes. Retirees will have their 401k accounts withdrawn at higher personal income tax rates, reducing purchasing power and potentially exposing them to running out of money.

My intention is not to instill fear in investors, but to help them recognize what very real possibilities we face and what’seeds for change’ they can plant today to protect future investments from fees and taxes.

These are the’seeds for change’ that investors should plant now to reap a harvest later in life.

You can become your most trusted financial advisor by learning how to enrich your knowledge and take complete control over your investments.

Invest in a strategy that is simple and has clearly defined exit and entry triggers.

Invest in low-cost funds to eliminate advisor fees. Investment returns are directly correlated with investment returns if fees are reduced. Returns are directly increased for every 1% reduction in fees.

To avoid capital gains tax consequences, invest in passively managed funds

To build wealth, leverage the power of compounding over a long-term.

If you are starting in a company-sponsored retirement plan, choose the Roth or Roth/401k option. These plans will require you to pay taxes now, while you are in a lower tax bracket, and they provide you with distributions that are completely tax-free once you retire.

Investors who choose to plant these’seeds for change’ today will be able to gain a competitive advantage in building, protecting, and conserving their wealth for the future.

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